A lot of us have been looking at ARM more closely since litigation with Qualcomm started. To refresh you on that situation, that litigation appears to be an effort to get Qualcomm to pay significantly more for licenses for PCs than it does for smartphones, even though the PC effort has yet to be successful. That effort likely won’t be successful until 2024 but only if Qualcomm invests a massive amount of cash – which, if ARM’s litigation is successful, Qualcomm wouldn’t have. The litigation is not only counter to the contract between Qualcomm and ARM, it places a cloud over ARM, and it appears to be increasing a migration of developers from ARM to RISC V. To me, it reads like extortion, but at best it is premature because the product ARM is attempting to get more money for doesn’t exist in market yet, so, getting a higher percentage of nothing is still nothing.
So why is ARM so hard-up for cash that it’s willing to put its future at risk in what looks like an effort to get Qualcomm to pay it more while putting QUALCOMM’s PC effort at greater risk of failure and clearly increasing the motivation to move to RISC-V (with Apple apparently hedging back in 2021)?
Let’s explore this.
ARM Needs Cash. Why?
The legal dust-up caused the industry to look at why ARM needs this cash, and we initially determined it was likely because the NVIDIA acquisition fell through. That acquisition would have provided SoftBank, which owns ARM, with cash and given ARM access to NVIDIA’s huge R&D war chest. But that effort failed, partially due to Qualcomm, but also partially because governments, particularly the U.S. government, doesn’t want big tech to get bigger (it is really hard to do mergers right now; ask Microsoft which just got sued to block it from doing one that gaming platforms have been doing without problems for decades).
Two things have subsequently been discovered. One is that SoftBank’s boss owes the company a whopping $4.7B and, most recently, the company is the focus of a probe by the U.S. Securities and Exchange Commission for misleading investors, an investigation that puts the firm at additional financial risk. This probe will make it nearly impossible for SoftBank to do an IPO until the problem is resolved, and finally, SoftBank had to write down a $100M investment in FTX (which is under bankruptcy protection and also under investigation). Finally, the head of SoftBank has been aggressively using SoftBank funds to buy out investors in order to take over full and absolute control of the company in order to potentially take the company private (estimated cost is $50B or around twice the massive cost of the Dell buyout that nearly failed) but also significantly reducing the firm’s cash reserves in the process.
This all means there is little free cash to invest in things like ARM market development or R&D. This showcases a risk to SoftBank and ARM that is extreme, but there’s a chance that a Qualcomm-led consortium that took ARM from SoftBank and potentially better funded ARM might fix the problem. Still, it would be wise to hedge with RISC-V development for when Apple, which is likely to fight this consortium approach, and others decide to abandon ARM’s licensing for RISC-V’s more favorable approach.
I think this all means that while moving from ARM to RISC-V may be premature, it wouldn’t be premature to begin developing RISC-V skills, particularly if you are developing on Apple products. Even if the Qualcomm Consortium approach works, Apple is likely to move to RISC-V in the next two to five years. But given the SEC investigation on SoftBank and the discoveries so far, it is likely there is other dirty laundry yet to be discovered that could put both the IPO and the acquisition at greater risk as well as other questionable executive financial decisions (the investment in FTX is troubling, as is the stock buyback plan which appears to benefit the head of SoftBank more than it does SoftBank).
And even if ARM pulls out of this mess, the momentum to the better RISC-V model may be unstoppable at this point, further justifying developing RISC-V skills because the market may have already gone too far to stop its pivot. In short, ARM is increasingly looking like the damage done by SoftBank may be unrecoverable, making a hedge on, or move to, RISC-V the safer choice.